Xbox Ends Support for IO Interactive’s Project Fantasy as Layoffs Begin, While Kojima’s OD Reportedly Survives

IO Interactive has announced staffing reductions after ending its relationship with an external partner connected to Project Fantasy, the Hitman developer’s ambitious online fantasy role playing game. The studio did not identify the company involved, but reporting from Bloomberg identifies Microsoft’s Xbox division as the project’s former funding and publishing partner.

In an official IO Interactive statement, the developer explained that the end of the partnership created immediate financial and operational consequences. The company confirmed that staffing decisions were already taking place and said it would support the employees affected by the transition. IO Interactive has not disclosed how many positions are being eliminated or which of its studios and departments are affected.

“Project Fantasy is a game, a world, and an IP that we absolutely love and remain 100% committed to, now and in the future. This wonderful universe will see the light of day.”
— IO Interactive

Project Fantasy was first announced in 2023 as a new original property designed to expand for many years. IO Interactive described the project as an online fantasy role playing game inspired by the books, tabletop experiences, and fantasy worlds that influenced members of its development team. The studio’s official Project Fantasy page remains active and continues to present the title as one of IO Interactive’s primary future projects.

IO Interactive has not explained whether development will temporarily slow, whether it is searching for another publisher, or whether it intends to finance the project independently. Its statement confirms a continued commitment to the intellectual property, but no release window, platforms, new commercial partner, or revised production plan has been announced.

The decision arrives shortly after IO Interactive completed and launched 007 First Light. The James Bond game sold 2.7 million copies during its first week, although Chief Executive Officer Hakan Abrak previously said it had not yet completely recovered its total investment because of royalties, partnership costs, marketing, and other commercial obligations.

Microsoft confirmed that it is reviewing where Xbox invests, but denied that the company is reducing its total annual spending on game content. Instead, the platform holder says its resources are being redirected toward different projects and strategic priorities.

“We’re not reducing our overall investment in games. We expect to invest about the same in content as we did last year. What’s changing is where we’re investing and the kinds of projects we’re backing.”
— Xbox spokesperson

The Project Fantasy decision forms part of a much wider restructuring under Xbox Chief Executive Officer Asha Sharma, who replaced Phil Spencer earlier in 2026. Microsoft appointed Sharma to oversee Xbox, Bethesda, Activision Blizzard, King, and the company’s broader gaming platform, with Matt Booty becoming Chief Content Officer. Microsoft later updated Sharma’s official title to CEO XBOX as part of another organizational change.

Reports have separately placed Compulsion Games, Double Fine, Ninja Theory, Arkane Lyon, Undead Labs, and other teams under review as Xbox prepares additional layoffs, potential studio sales, project cancellations, and closures. The final outcome remains uncertain for several studios, and Microsoft has not publicly confirmed every reported decision.

Arkane Lyon and Marvel’s Blade are reportedly among the projects facing significant uncertainty. Recent reporting claims Microsoft has considered canceling Blade and selling or closing the studio, although no final public announcement has been made. This creates a sharp contrast with comments published only days earlier, when Bethesda’s Todd Howard praised Arkane’s progress on the game.

Hideo Kojima’s OD appears to be in a stronger position. According to IGN, a source familiar with Microsoft’s plans says the experimental horror project remains in development at Kojima Productions with Xbox continuing as publisher. Microsoft and Kojima Productions have not issued a new statement specifically guaranteeing that OD is protected from every future restructuring decision, meaning its reported safety should not be treated as a permanent commitment.

OD was originally announced as a collaboration between Kojima Productions and Xbox Game Studios, with filmmaker Jordan Peele involved alongside Hideo Kojima. The project stars Sophia Lillis, Hunter Schafer, and the late Udo Kier, and is being developed with technology intended to explore fear through a format that combines elements of games and film. The official Kojima Productions OD page remains available, but the game still has no confirmed release date. Kojima recently said OD was designed to push beyond the conventional limits of horror and test how much fear players could tolerate.

Ending support for Project Fantasy shows that Xbox’s reset is moving beyond its internal studios. Third party publishing agreements are also being examined according to their cost, risk, development timeline, and strategic value.

Microsoft’s claim that overall content spending will remain stable is important, but stable investment does not mean stable support for every developer. Xbox can spend the same amount while directing a greater percentage toward established properties such as Fallout, The Elder Scrolls, Call of Duty, Minecraft, and other franchises with predictable audiences.

That strategy may improve financial discipline, but it also risks reducing the diversity of Xbox’s future portfolio. Project Fantasy represented a new intellectual property from an experienced independent studio. OD represents another experimental external partnership, but one connected to Hideo Kojima, one of the industry’s most recognizable creative figures. Its reported survival suggests that Xbox may still support unusual projects when the creative name and potential cultural impact are considered strong enough.

For IO Interactive, the commitment to continue Project Fantasy is encouraging, but replacing a major publishing and funding partner during development is a substantial challenge. The studio may need to reduce the game’s scale, delay production, find another investor, or redirect revenue from Hitman and 007 First Light to maintain progress.

The immediate concern remains the employees losing their positions. Corporate restructuring is frequently presented through investment priorities and portfolio management, but the practical result is instability for developers who may have spent years building a project that is still far from release.

Should Xbox continue supporting experimental projects such as Project Fantasy and OD, or should it concentrate its investment on established franchises with lower commercial risk?